Finance Minister Carlos Leitão’s first budget reads like a business plan for reviving Quebec’s moribund economy.

QUEBEC - Finance Minister Carlos Leitao describes the 2014-2015 Quebec budget he will present next Wednesday as a “transition budget.”

The newly-elected Liberal government must set out its plans to allocate public spending for the fiscal year that began April 1, but Premier Philippe Couillard promises a whole new approach in his government’s next budget, for 2015-2016, that Leitao will present in March 2015.

That budget will tackle Quebec’s “structural deficit,” caused by years of spending beyond taxpayers’ means, on social programs among the most generous in North America, from subsidized daycare to parental leave, public pension plans that are underfunded, to costly medical procedures paid by the provincial health insurance plan.

But, written by the same finance department experts who prepared the February budget of Parti Québécois finance minister Nicolas Marceau, Leitao’s budget will likely resemble the Marceau budget.

The Liberals have been hinting Marceau was more optimistic than sluggish economic conditions would justify, and new governments, Liberal and PQ alike, always paint their predecessors as poor managers, making the claim that now the economy will be set right.

In his election campaign, Couillard often repeated his 20-23-27 formula to explain the problem with Quebec’s economy.

Quebec produces 20 per cent of Canada’s wealth, accounts for 23 per cent of Canada’s population, but Quebec’s share of total provincial spending is 27 per cent.

According for former Liberal finance minister Raymond Bachand, Quebec is spending $11 billion more, proportionately, than the other provinces, proposing that the Couillard administration should trim its spending by $3 billion a year.

Marceau proposed spending of $75 billion next year in a balanced budget, with a surplus of $1.6 billion, all of it paid into the Generations Fund.

Could Leitao reduce Quebec’s spending next year to $72 billion?

Leitao was ranked second in a 2008 evaluation by Bloomberg News, rating the forecasting skills of 126 economic professionals in predicting trends in the U.S. economy.

His first budget will offer clues on how Leitao will meet the challenge of his next budget.

Doctors

The pay of Quebec doctors rose by 67 per cent from 2008 to 2014, compared with a 22-per-cent increase for other public-sector employees in the same period. In 2013-2014, Quebec’s 18,000 doctors were paid a total of $6.1 billion, including a raise of $530 million.

In the new budget, they would get an additional $540 million this year. Like the PQ government before it, the Liberal administration wants doctors to spread that increase over a number of years. Gaétan Barrette, as president of the Fédération des médecins spécialistes du Québec, negotiated the pay agreement for the doctors. Now Barrette, as Liberal health minister, is negotiating with the doctors, asking them to spread out the $540 million over 15 years, a proposal his successors in the medical federations have dismissed as ridiculous.

Daycare

The PQ budget proposed increasing the $7 daily fee parents now pay to $8 on Sept. 1, $9 in 2015, then indexing it at $9.20 a year in 2016, adding $125 million a year to the provincial treasury. Premier Couillard has rejected the PQ increase, saying it would mean $1,000 a year more for a family with two children in daycare.

This budget will index the daily fee to the cost of living, but Couillard has suggested, as part of his government’s planned spending review, more well-off parents could pay $10 a day.

Medical

Quebec established in 2010 an in vitro fertilization program, paid by medicare. Originally budgeted at $30 million, last year it cost $67 million. The College of Physicians and Surgeons opposed the IVF program, saying it would mean more premature children with birth defects, adding further to health and schooling costs. Couillard has talked of “improving,” not eliminating, the program, which he opposed as health minister.

Quebec also has a program to treat macular degeneration, which can lead to blindness. That program is over budget as well.

In addition to asking doctors to stretch out their pay increase, Quebec is looking at a number of ways to reduce the $32 billion a year — almost half of program spending — spent on health care.

Patient-based funding is one way to do this, having money follow patients, rather than granting set amounts to hospitals.

The Liberal government campaigned on a promise to add $150 million a year, for five years, for home care, which is less costly than hospital care.

But Quebec will add about 345 new doctors in 2014-2015, and that will increase costs for the health-care system, on top of what the doctors are paid, by about $100 million — additional tests, new equipment and procedures requiring more technicians.

In his February budget, Marceau proposed scaling back the health budget increase to 3 per cent, from 5.1 per cent in 2013-2014. It is unlikely Leitao, his Liberal successor, would spend more on health care. Marceau justified the cut saying he was convinced the health system could find ways to save money.

In his inaugural address last week, opening Quebec’s 41st legislature, Couillard said his government would reduce over four years “at least 10 per cent of the bureaucracy” in Quebec’s health-care system, eliminating non-medical positions, in support of and coordinating the work of medical staff.

Health tax

Quebec’s $200-a-head health tax, introduced in 2010, was modified by the PQ government, making those earning $18,000 and less exempt, reducing it to $100 for those with taxable incomes under $42,000, maintaining it at $200 on incomes in the $42,000 to $150,000 bracket and raising it progressively to $1,000 for those earning more, who also pay about $400 million more in income tax under the PQ plan.

In 2014-2015, the health tax should bring in over $1 billion.

Couillard says he cannot abolish it, before Quebec’s budget is balanced. But from 2016-17 on, when Liberal projections call for a balanced budget, Quebec should be running a surplus. Half that money will go to pay down the debt, the other half to reduce taxes, including the health tax.

Public sector negotiations

Quebec’s 430,000 public employees, mostly civil servants, health and education workers, who negotiate together, gained 7.5 per cent under their five-year collective agreement, expiring next March 31. Public-sector remuneration accounts for 59 per cent of Quebec’s spending. Public-sector unions, noting they are less well paid than private-sector employees and earn less than municipal and federal employees, have called for three annual 4.5-per-cent increases. Quebec has signalled that it wants an agreement longer than three years and is seeking increased productivity. Premier Couillard has indicated that the wage settlement must respect Quebecers’ capacity to pay.

Education

The Liberal government is abolishing the regional offices of the education department and reducing the size of the department’s central administrative offices.

Last year, the PQ government ended an equalization program that held down school taxes. As a result, school boards scrambling to make up the $200 million shortfall raised school taxes, sometimes by as much as 30 per cent.

While deploring school-tax hikes under the PQ, Education Minister Yves Bolduc will not correct the situation and says there will be “reasonable” school-tax increases this year.

Dissatisfaction with the handling of the 2012 tuition dispute by the Liberal government of Jean Charest was a factor in Charest’s defeat. Couillard does not seem eager to reopen the tuition debate. But he has said foreign students, from French-speaking countries, who now pay the same tuition as Quebec students, would lose that privilege. The idea was to attract them to settle in Quebec. But most of the francophone students return home.

Taxes

The Couillard government will undertake a reform of Quebec’s tax system “that will remain equitable, but will encourage work, effort, investment and job creation.” There will be a cleanup of the various subsidies to business, weeding out ineffective or counterproductive programs. The reform would also ease the tax burden on Quebec families.

Permanent Program Review

Couillard has promised a permanent review of Quebec’s spending programs, among the most generous in Canada, often unmatched by programs in other provinces, such as subsidized daycare and parental leave. The premier said in his inaugural address that it will be difficult to find a consensus. “The government will listen to different points of view, then act clearly and decisively.” Special attention will be paid to the most vulnerable.

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